Harnessing Georgian investment potential
28 April, 2011
Harnessing Georgian investment potential

To win its portion in the post-crisis race for attracting capital is becoming more and more difficult. Georgia needs to promote its competitive investment positioning rather than continue talks of its investment potential.
Georgia has always been an investment-deficient country irrespective of much talk [on the part of the government] trumpeting huge investment potential of the country. But the global financial crisis and war with Russia in 2008 affected its investment status significantly. Since 2008 inflow of Foreign Direct Investments

(FDIs) shows a downward trend. FDIs reduced by 58% in 2009 from USD 1.564 billion in 2008 to USD 658 million in 2009. Government reasoned the slump by crisis effect and expected the investment figure to go up to USD 1 billion in 2010 when Georgia bottomed out crisis and GDP growth reached 6% unlike 4% slump in 2009.
However, the FDI inflow in 2010 was even worse than in the crisis-affected 2009: the FDI made just USD 553 million that falls much behind the predicted USD 1 billion and translates into 16% drop compared to 2009. Georgian government assures this it is a result of global financial crisis for all countries globe over fell behind their FDI projections in 2010, it expects about 6-7% growth in GDP this year and hopes investment inflow will be recovered.
BG Capital, an investment arm of Bank of Georgia, thinks FDI slump is a result of increasing political risks and expects this year FDIs to reach USD 700-800 million thanks to positive macro-economic forecasts and certain successful reforms carried out in the country.
Nonetheless investment inflow in the first quarter of this year reduced by 25% compared to the previous quarter. Some economic analysts say the reason Georgia is investment-deficit is not political risks but small market, lack of democratic values like violation of property and human rights and unfair judiciary system, and crack-down on business.
Rodrigo Ortiz, a Specialist Leader with Deloitte Consulting LLP, who works on Georgia’s competitive positioning in frames of the USD 40 million worth Economic Prosperity Initiative (EPI) of the US Agency for International Development (USAID) in Georgia, thinks that political instability and market size can be offset if a country proposes truly valuated business advantages to the international markets and will be flexible to the market trends. To achieve this goal Georgia needs to promote its competitive positioning at the international market and the four-year EPI program is supposed to help it to this end.
“There are many small economies that are successful, Iceland and Costa Rica for example. Costa Rica with scarcely over 4 million people, and 51 thousand square kilometers is getting USD 2 billion of FDI per year,” Ortiz said during his meeting with Georgian media on April 15, 2011.
According to him, market size is not a problem as not all investors  are looking for large internal markets; there are investors who need  export platform for indirect investment and they are supposed to come to Georgia that has strategic location, natural beauty, deep and rich history, lucrative natural resources and talented and educated population.
“In the country of origin they [investors] are missing something that’s affecting competitiveness - maybe labor is too expensive, maybe they have no access to right raw material, maybe they lack positions strategically in region so they are coming in the country like Georgia looking for these competitive advantages to export or import substitution, but they need not necessarily be export-oriented, a significant part  will be import-substitution because Georgia imports so much,” Ortiz elaborated.
To disperse political risk prejudices Ortiz exemplifies Costa Rica success story that promoted itself in spite of war all around the country. Costa Rica succeeded for it was seen relatively safe for its democratic structure that was valuable for the whole world.
“If you look at global politics Georgia is also a very valuable concept, valuable idea to many nations, and actions taken for improvement of business climate and demanding what you changed in politics and reforms you put in place gave very positive messages,” he said adding that the fact that Georgia managed to attract USD 533 million 2010 against the backdrop of financial crisis affecting all countries and irrespective problems in democracy plus political risk means that business wants to be here. And now to win the aggravated race for investments in the post-crisis period the message instead of saying “we cannot compete” Georgia must care to be better by making structure and strategy and positioning so that “when the market starts upturning it could be competing with others and getting its share of the investments”.
Ortiz recommends Georgia to focus on its competitive advantages not only by touting the country merits and saying it welcomes FDIs, but by positioning its unique value proposition like saving costs, access to certain market, access to certain input or raw material.
“That’s about harnessing the potential and turning it into something real that can benefit the country because it fulfils policy objectives: employment, exports, and investments. So look for the investments and contribut them to the most specific areas,” he said. 

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GEL Exchange
USD
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USD
2.7468
EUR
1
EUR
3.0943
GBP
1
GBP
3.4753
RUB
100
RUB
4.2700
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